Emerging Asian currencies rose on Monday as the dollar broadly fell, staying around a 17-month low against the yen, while China's economic data indicated a sign of easing deflationary pressures. South Korea's won hit its strongest level in more than a week as dollar demand linked to dividend payments by local companies to foreign shareholders was seen weak.
The Malaysian ringgit hovered near an eight-month high, tracking rises in oil prices and as a media report spurred hopes of bond inflows from China. China's producer prices fell less than expected in March with consumer inflation stabilising, a sign that strong deflationary pressures in the country's industrial sector may be lessening. "Asian currencies found support from a weak dollar and stabilisation in oil prices," said Yuna Park, currency and bond analyst at Dongbu Securities in Seoul. Park, however, was cautious over further gains in regional currencies, given the yen's strength, as it could drive unwinding of carry trades.
"Inflows could slow down on weakening risk appetites amid concerns over global developments such as Brexit. Emerging Asian currencies may even weaken in the second quarter," she said, referring to Britain's possible exit from the European Union. Regional economic outlook remained bleak. The World Bank trimmed its 2016 and 2017 economic growth forecasts for developing East Asia and Pacific, and said the outlook was clouded by risks such as uncertainty over China's growth prospects, financial market volatility and further falls in commodity prices.
The won gained 0.8 percent to 1,145.0 per dollar, its strongest since April 1. The South Korean currency had earlier weakened on expectations of dollar demand linked to local companies' dividend payments to foreign shareholders. But dollar bids linked to dividend repatriation did not appear strong, prompting traders to dump holdings of the greenback. Offshore funds and exporters also sold the dollar.
The ringgit rose as much as 0.8 percent to 3.8720 per dollar. That compared with a four-month peak of 3.8600 hit on April 4. China's government has started buying more Malaysian government securities (MGS) and this inflow of new foreign money could rise to 50 billion yuan ($7.7 billion) in total, the Star, a local English daily newspaper, quoted Second Trade Minister Ong Ka Chuan as saying. "There are steady inflows of MGS into Malaysia and we expect this to continue given the yield levels and the fundamentally undervalued MYR," said a senior Malaysian bank trader in Kuala Lumpur.
"We expect the pair to trade 3.85-3.95 and suggest to sell the rallies," the trader said, referring to dollar/ringgit. The ringgit pared some of earlier gains as data showing factory output in February rose 3.9 percent from a year earlier, missing market expectations of a 4.0 percent growth. Capital inflows to the country are also likely to slow down as some investors and analysts said the country's assets are starting to look pricey. Most government bond prices slid.
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